February 20, 2024 (MLN): China has given a major blow to Pakistan this month as the country divested a total of $254.9 million in January 2024, resulting in the nation's Foreign direct investment (FDI) plunging to a negative total of $173.2m, the second highest in history.
Pakistan had not seen any divestment through foreign investors since March 2022, wherein the outflow clocked in at $30.43m.
It is worth highlighting here that the peak outflow by foreigners was observed in October 2018, at $390.87m, with China being the sole contributor as the country divested the highest amount of $510.41m in that respective month.
Despite this transition by China, it still holds the status of the majority proportion (30.01%) of direct investments in the country during 7MFY24, even though these inflows from the CPEC partner have declined substantially by 51.48% YoY, compared to the figure of $426.46m in SPLY.
However, this shift raises alarms and concerns over the political and economic instability, casting doubts on the factors that may have led to this divestment.
The data released by the State Bank of Pakistan (SBP) revealed that the power sector recorded the highest negative foreign investment of $242.6m in January.
The country is already grappling with the heavy circular debt burden associated with both the power and gas sectors. Regardless of these concerns and worries, the country was still able to attract investments as in the previous month, FDI in this sector stood at $94.8m, while in 7MFY24 it was reported at $191m.
In terms of growth prospects, the cumulative figure of FDI in the ongoing fiscal year reflects a drop of 64.9% YoY primarily due to Chinese divestment in this sector in January.
This sudden drop may be attributed to the persistent uncertainties surrounding the circular debt plan and its implementation which may have prompted a lack of confidence in this sector.
The caretaker Energy minister, Muhammad Ali, during a television interview, stated that the aim regarding DISCOs is to privatize them and efforts are being made to present it to the privatization committee of the cabinet.
Furthermore, the main element that he highlighted was that the government has unveiled an ambitious plan to slash circular debt by one-third.
Despite these initiatives as declared by the caretaker setup, the Circular Debt Resolution plan has not yet been brought into motion.
The government disclosed that the long-awaited negotiations with the International Monetary Fund (IMF) regarding the settlement of the energy sector's circular debt have started.
Simultaneously, the market was filled with negative rumors suggesting that the ambitious plan had not received approval from the global lender.
Later on, the Ministry of Energy (MoE) dismissed the negative perception being created regarding the Circular Debt Reduction and Tariff Rationalization Plans and clarified that it had productive deliberations with the IMF with further progress expected soon.
However, with the political unrest spreading in the country, delays in effectively progressing these plans with the global lender may be anticipated.
General elections took place in the country on February 08, and as usual, the unfair dilemma was anticipated, which the economy actually witnessed.
The expected uncertainty surrounding the conduct of elections and the formation of a new government might have also forced Chinese investors to withdraw their investments.
With China being the largest foreign investor in Pakistan, this sudden shift calls for immediate action because if not addressed, it would lead to a sustained pattern of divestments which could further have serious repercussions for the country.
Copyright Mettis Link News
Posted on:2024-02-20T18:29:37+05:00
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